Islamic-Social-Finance-Report-2020

Islamic Microfinance 5.3 MAURITANIA advent of political pluralism in Mauritania in 1991. According to the data available 5.3.1 OVERVIEW OF THE SECTOR at the Ministry of Interior, there are over 8,500 formally registered organizations Microfinance in Mauritania is not according to the law provisions, through the exclusively Islamic. The approvals granted approval of the Ministry. We excluded from by the Central Bank of Mauritania are this associative networks, cooperatives of general and universal and allow their agricultural production, artisans, fisheries, beneficiaries to finance both conventional oases, and cooperatives of savings and and Sharī‘ah-compliant operations. credit (microfinance). These types of associations are subject to other laws and The microfinance sector began with the regulations. creation of the Association for Credit and Small and Medium-Sized Enterprises Law 64-098 of 9 July 1964 governs (ACMPE) and the Mauritania Development associations and their supervision is Initiative (IDM), two funding structures entrusted to the Ministry of the Interior. It dedicated to the reintegration of grants them legal personality (Article 12) Repatriated from Senegal in 1989. and they may be recognized as being of public utility (Article 20). The opening of the first Caisse Populaire d’Epargne et de Crédit (CAPEC) in 1997 Acts 73-007 of 23 January 1973 and was the first action to reflect the launch of 73-157 of 2 July 1973, mainly to specify a national policy for the development of a certain provisions relating to foreign funds Microfinance sector. that may be received by associations, amended Law 64-098. In 1998, a specific law was enacted regulating cooperatives and savings and Draft legislation amending 64-098 and credit mutual: Law 008/98 of 28 January taking into account its shortcomings, 1998. especially with recent developments of the sector, has been prepared but not yet After a few years of implementation, it has submitted to Parliament for adoption. been found that this regulatory framework, although it has allowed some development At the end of 2019, a public mission of microfinance in Mauritania, has administration called the General remained a constraint to the actors of the Delegation of National Solidarity and the sector in several fields. fight against exclusion “TAAZOUR” was created by the Presidency of the Republic. To this end, a revision of this legal and regulatory framework has been initiated: The delegate was established by a decree a new law (Ordinance No. 005/2007) is issued by the president that is directly promulgated as well as its implementing attached to the presidency of the republic, texts (4 instructions are enacted). and includes projects devoted to fighting poverty, exclusion and marginalization. As for the Charitable Associations, the voluntary sector has grown since the TAAZOUR was established to “achieve social protection, eradicate all forms of 141

Islamic Social Finance Report 2020 inequality, promote national harmony, and • S trategic Axe 2: Developing human coordinate all interventions in the targeted capital and access to basic social areas.” services, A financial cover of 200 billion old • Strategic Axe 3: Strengthening Ouguiyas will be allocated during the governance in all its dimensions. next five years to finance the General Delegation and enable it to implement The three axes of the SCAPP are articulated an ambitious program for economic at the level of the first action plan (2016- and social promotion for the benefit of 2020) around the 15 strategic projects, groups that have suffered from inequality implemented in 59 priority interventions and marginalization by strengthening to be carried out in the form of reforms, production tools and developing the programs, projects or significant actions. purchasing power of the poor and enabling The development of the microfinance them to access education and health sector was supported in the two strategic services, safe drinking water, decent axes 1 and 2. housing, and energy. Regarding the charitable sector, and in the 5.3.2 MICROFINANCE context of the Poverty Reduction Strategy REGULATORY & POLICY (PRSP), since its adoption in 2001, three FRAMEWORK PRSP phases have taken place through three action plans: 2001-2004, 2006- Following the completion of the PRSP 2010 and 2011-2015. According to the (2001-2015), Mauritania has developed evaluation of PRSP III, among the main a Strategy for Accelerated Growth and constraints that caused bottlenecks in Shared Prosperity (SCAPP) covering the implementation of the PRSP during the period 2016-2030, corresponding to the period 2001-2015 is the “low level of Agenda 2030 for Sustainable Development. ownership by national, regional and local actors and associations concerned”. The vision of the future, entitled “Mauritania we want in 2030”, is based on the values of At present, a new challenge presents itself Sunni Islam, and tolerance, social cohesion to civil Society. This is the Strategy for and peace. It aims to achieve strong, Accelerated Growth and Shared Prosperity inclusive and sustainable economic growth (SCAPP), which covers the period 2016- in order to meet the basic needs of all 2030. The authorities want to involve all citizens and ensure their well-being. networks of organizations at the grass- roots level in the economic, cultural and To achieve that, three convergent levers social development activities of the constitute the strategic objectives chosen country. to ensure that growth, in order to achieving prosperity that benefits all: For the regulatory framework of microfinance, there was the ordinance • S trategic Axe 1: Promoting Strong, No. 005 /2007 of 12 January 2007, Sustainable and Inclusive Growth, regulating microfinance institutions and its implementing texts, four (4) instructions 142

Islamic Microfinance from the Governor of the BCM, governs the MFIs in category ‘A’ may operate microfinance sector. Implementing texts in independently or within a network the form of instructions from the Governor consisting of the establishment of an of the Central Bank of Mauritania were appropriate structure: either union or adopted on 02 May 2007: federation. • Instruction No. 07 / GR / 07 on The General Assembly (all members) have financial cooperatives. a Board of Directors (5 to 9 members), a Supervisory Board (3 to 5 members) and • I nstruction No. 08 / GR / 07 on a Credit Committee (at least 3 members). prudential ratios. The latter three bodies shall be elected for a period of three years, renewable each • Instruction No. 09 / GR / 07 on year for one third of the members. They are financial transparency. managed by a manager for a basic MFI and a General Manager for the network. • Instruction No. 10 / GR / 07 on approval and registration. This order puts an end to the monopoly of financial cooperatives by opening the Article 4 of Ordinance No. 005/2007 of market to public limited companies (plc). 12 January 2007 regulating Microfinance The specific Microfinance Accountability Institutions subdivides the Micro Finance Plan to complement this regulatory Institutions (MFIs) into three categories: framework is not yet formally adopted, Category (A) includes the non-profit although it has been ready since 2008. The and mutual-benefit institutions offering BCM in charge of sector supervision has limited savings and / or credit services to set up a Directorate for this purpose. Article their members. They must be set up as 79 of Ordinance 005/2007 establishes a non-profit association or as a financial that the tax regime for MFIs will be cooperative. Category (B) includes MFIs in specified by decree, which has not yet been the form of a public limited company (plc) enacted. An incentive tax regime would that provide credit and / or savings services greatly contribute to the promotion and to the public. Category (C) includes development of Microfinance. the programs, projects, development associations and units dedicated to As for supervision and governance of microfinance that offer credit services but microfinance, the BCM supervises the MFIs do not collect savings. (Article 3 of the Ordinance). As such, it has a mission to monitor, supervise and verify The microfinance institutions (MFIs) may the regularity of MFIs’ operations, granting not carry out their activities without prior and withdrawing authorization. authorization (MFIs of Category A and B) or registered (MFIs of category C) by the The Department of Professional BCM; for networks, authorization may be Development and Microfinance granted on a collective basis to the union (DIPM) of the Ministry of Employment, or federation (Article 20 of Ordinance Vocational Training and Information and 005/2007). Communication Technologies (MEFPTIC) promotes the microfinance sector in 143

Islamic Social Finance Report 2020 Mauritania. It includes a Microfinance people or artists in the country had to Service which deals more specifically with obtain the authorization of the Minister in the sector. The DIPM is in charge of the Nouakchott. PRECAMF-PAMFEJ, the main microfinance project in Mauritania, financed by the The draft law on associations, foundations African Development Bank (ADB). and networks of associations, repealing and replacing Act 64-098 of 9 June 1964 Civil society is represented in this on associations, states in its explanatory institutional framework for microfinance memorandum that “the voluntary sector governance, through the Professional is growing rapidly. It is an important lever Association of Microfinance Institutions for the implementation of development (APROMI), which was set up in 1997. It policies and democracy. However, the legal represents a framework for consultation framework that governs it does not reflect and exchange involving all MFIs approved this situation”. The draft, however, only by the BCM. It records to its credit the brings in three innovations in relation to the development of a Code of Ethics (with the law which it seeks to repeal, namely: support of PRECAMF). DD The proposed provisions regulate As for the charitable associations, the associations, foundations and networks relevant regulations are based on Act of associations. 64-098 of 9 July 1964. The central state feared the emergence of associations with DD The project defines the categories of tribal, racial or regional connotations. This associations according to the territorial is why the law has concentrated the power scale to which they relate. of apprioval of associations, no matter what their nature, size and scope is, at the DD The power to authorize associations central level, in the hands of the Minister has been decentralized to the of the Interior. Thus, associations of young territorial authorities with regard to those operating in their respective 144

Islamic Microfinance constituencies. This last innovation is such as Tamwil Kasb El Halal, Islamic an effort to bring the administration of Finance Development, El Ibdaa Bank and the public in this area closer. Tadhamoune for Islamic Finance. The sector also includes non-accredited MFIs 5.3.4 ISLAMIC MICROFINANCE that carry out their activities for the most INITIATIVES important, supported by government projects or programs or technical partners. 5.3.4.1 MICROFINANCE INSTITUTIONS These are mainly NISSA BANKS, and BEIT EL MAL, supported by the NGO, Research In 2018, the microfinance sector saw the and Technological Studies Group (GRET). entry into operation of 6 MFIs including 5 of category ‘B’ and the termination • Financing: At the end of 2018, activity of 4 under category ‘A’ institutions. Microfinance institutions posted a Thus at the end of 2018, the sector net credit outstanding of MRU 0.4 had 24 microfinance institutions in billion, up 11% compared to 2017, activity including 3 networks: i) les in connection with FADES credits Caisses Populaires d’Epargne et de for CAPEC. CAPEC’s share in loans Crédit (PROCAPEC / CAPEC), ii) Caisse from microfinance institutions d’Epargne et de crédit, iii) l’Union Nationale represented 34%, while the des Mutuelles d’Investissement du remaining 66% was shared between Crédit Oasien (UNMICO), 15 Category B other institutions. Compared to the institutions and one category A. The three banking system, the outstanding microfinance networks are present in all loans distributed by MFIs at regions of the country. 12/31/2018 represented 1% of total credits. Most newly accredited MFIs want to comply with the Sharī‘ah and sometimes • Deposits: In 2018, deposits from display them in their corporate names, microfinance institutions increased 145

Islamic Social Finance Report 2020 by 13% compared to 2017, following secondary sectors. the entry into operation of the new institutions as well as the increase Due to a lack of nationally collected recorded at the CAPEC level. The resources, these charitable associations distribution of deposits shows are easily turning to the Gulf countries or that CAPEC holds more than 68%, donors such as the Islamic Development compared to 32% for the other Bank, Saudi Fund, Kuwaiti Fund or other institutions. This deposit volume similar Arab institutions. They derive represents only 2% of the total almost all of their funding. They focus on deposits collected by the banking charitable social actions (protection of system as at 12/31/2018. widows and orphans, health, water supply, income-generating activities), or the • P roducts offered: The Islamic construction of religious infrastructures or products offered by the MFIs are support for Qur’anic schools of instruction. for their quasi-totaled transactions of murabaha with purchase order, These associations have different profiles. not to say tawarruq, because the Some are well structured with headquarters unacknowledged purpose of the and permanent staff and also members clients is often the acquisition of national and international academic of cash to finance consumption organizations, while others are more akin expenses or working capital for to informal neighborhood committees, their sub-projects. The maturity which are not very visible at national is generally short-term, less than level and are oriented towards private one year, because the resources international networks of charity. It should available are also short. The be recalled that international Islamic Non- average loan is of the order of Governmental Organizations (NGOs) were MRO 350,000 and the profit margin all forbidden and their offices closed in May varies between 14% and 20%, with 2003 as part of an anti-Islamist campaign. a real guarantee (saving, wages or The banning of international NGOs and income domiciliation) or personal most of the local NGOs that served as (down payment or solidarity surety). their intermediaries did not put an end Microfinance institutions have to their activity, but sometimes made introduced other Islamic products, it quite uncontrollable and clandestine. such as ijara muntahia bitamlik, but These NGOs often escaped state control, they are still rare. as they were often informal before being restricted in the past few years as part 5.5.4.2 CHARITABLE ASSOCIATIONS of the prevention of terrorist acts. This phenomenon is followed fairly closely by For organizations that have been the Mauritanian authorities, through the accredited, more than 50% of them are National Directorate of Civil Society. involved in the social / charitable sector and some areas such as development, Among the most active structures in the health and the environment are only field of beneficence and charities, we can 146

Islamic Microfinance cite: such as exemption from taxes and customs duties, reduction DD The Al Khair Association of interest on loans and banking facilities and protection from DD Association Besma wa Emel foreign competition. DD The El Irada Association • A dministrative bureaucracy and long procedures complex for DD Association of mosques and obtaining licenses. mahadras. Opportunities 5.3.5 STRATEGIC ANALYSIS & RECOMMENDATIONS • The launch of Islamic financial institutions. Strengths • The underdevelopment of • A generally adequate regulatory microfinance in Mauritania is likely and supervisory framework for to attract the interest of donors. microfinance and civil associations. Threats • A separation of the promotion (MEFTIC) and supervision • T he international financial crisis is (BCM) functions of the sector of likely to reduce development aid microfinance. budgets; • An active involvement of the private • T he awareness needed effort to sector. encourage the potential clients of Islamic microfinance services. Weaknesses Recommendations • F inancing difficulties: Stable and long-term resources are limited. • Adoption of national policies to develop microfinance and charitable • Organizational difficulties: Weak sector. organizational and human resource capacity. • T he need of integrated regulatory framework to include the Islamic • F unctional difficulties: Customers microfinance. of these institutions face the daily problems of production • D evelop the institutional structure and marketing, and control of and supporting infrastructure for the legislation. sector. • C ompetition difficulties: High • T he use of technology to count production costs, lack of quality and and classify the data and statistics result in competitiveness at home about the sector. and abroad. • Lack of adequate encouragement 147

Islamic Social Finance Report 2020 6,000 direct and almost 1,000,000 indirect jobs. It ranks 14th in the Global Microscope 5.4 MOROCCO Index rankings in 2015 and gained a remarkable 30 different positions in 5 years 5.4.1 OVERVIEW OF THE (Rank in 2009: 44th place). The Kingdom SECTOR of Morocco is the fourth African country, behind Tanzania (6th), Ghana (10th) and The microfinance sector in Morocco Kenya (11th). can be described in a synthetic way as 13 Micro-Credit Associations (AMC); The sector is covered by recurrent debates They are “bodies assimilated to the on its institutional positioning for many credit institutions” and are governed years, with three axes of debate: by Law 18-97 on the regulation of Microcredit and Law 103-12 on • T he expansion of banking credit institutions and assimilated operations that can be carried out institutions. Among these AMCs are 3 on behalf of the financial institution of the 15 largest NGOs / associations itself, to the payment and collection in the world. They have a cumulative of savings, which raises the outstanding amount of 6 billion dirhams question of the type of approval and 911,856 active borrowers as at 30 obtained. September 2015. • T he pooling of certain functions and This is in addition to a good portfolio the network operation of AMC of quality with a PaR30 at 4.6% as at 30 size small to medium, in particular September 2015; a penetration rate of with the Solidarity Microfinance 2.7% which suggests a large margin Network (RMS). for growth; and more than 1,600 outlets distributed throughout the • T he preservation of the social country at the end of 2015. The sector dimension of micro-credit and of emerged strengthened by the crisis “social sustainability” within: (1) a it experienced in 2007-2010, and of change in the authorization, and (2) absorption-liquidation of the number a related evolution of the legal form two of the sector (Zakoura Micro-Credit (towards Public limited company or Foundation). cooperative company). The micro-credit sector shows a It is noteworthy that the new Banking high level of social inclusion, as Law No. 103-12 on credit institutions and beneficiaries attribute positive impacts assimilated institutions that include a in 93% of cases. The customer chapter for participatory “Islamic” banks satisfaction rate is much higher than offers important advances in microfinance that of the commercial banks. The sector by laying down the principle of tool is recognized by all as a tool the possibility for a credit institution to for combating poverty and financial be approved with a form of cooperative inclusion. It is one of the Kingdom’s society. Therefore, the microfinance leading employers and has created institutions can provide Islamic products to their customers. 148

Islamic Microfinance 5.4.2 MICROFINANCE the public limited company, cooperative REGULATORY & POLICY society, and non-profit organization. FRAMEWORK Indeed, the law specific to micro-credit only allows the associative form, unlike other The adopted policies for microfinance in legislation (including those focusing on Morocco can be analyzed at micro, macro micro-credit). and meso Levels. However, this does not constitute a 5.4.2.1 AT MICRO LEVEL fundamental obstacle to the development of a diversified microfinance landscape if At this level, we can distinguish between 4 any technical bottlenecks to the exercise axes: as a credit institution are lifted. On different continents and in very different • C ategories of financial institutions and socioeconomic contexts, microfinance authorized transactions: often takes on a cooperative form. Banking and microfinance law in Morocco Lastly, although the presence of offer a variety of legal approvals and forms public limited companies is clear and for carrying out banking transactions. uncontested, and could serve both new players and AMCs who have subsidized The minimum capital for obtaining an their businesses, it is possible to detect authorization is no longer an obstacle for a discrepancy between the company the three largest Moroccan AMCs, nor law in Morocco and the aspirations of indeed for a major investor. Some banks certain actors in the social and solidarity aim to offer savings and money transfer economy. However, this does not call services to AMC’s target clientele, and have into question the very essence of public even launched products dedicated to low- limited companies but their main purpose income clientele. (maximizing the realization of profit or purpose in the general interest), and the However, the distribution of micro- relationship of shareholders to the profits credits by banks or finance companies of the company. remains marginal. The reason for this non-involvement of banks and companies • P rudential and financial regulation by financing in credit to income-generating institution category activities, for non-wage earners, is mainly due to the significant differences in the The prudential and financial regulation law of market practices, in particular to the applicable to credit institutions reveals restrictions on maximum interest rates. a major distinction between the two categories of credit institutions (banks • Comments on possible legal forms and finance companies) included in Banking Law No. 103-12, and Micro-credit In the three categories of financial associations. institutions described above, the essential legal forms that can be envisaged, or The former is subject to full prudential at least be useful in microfinance, are regulation, while the latter is subject to accounting and financial regulations 149

Islamic Social Finance Report 2020 adapted to the activities authorized by ¾¾ Or to more decentralized prudential their authorization, supplemented by the supervision arrangements (and based microcredit crisis, by additional standards on the financial health of each). - essentially prudential - in matters of governance and classification and • P articipatory finance: banks, financing provisioning of receivables. companies and microfinance In terms of institutional choices on the Law 103.12 on credit institutions and part of the actors, there are three main assimilated institutions introduces possibilities: participatory banks in the banking code through the establishment of new ¾¾ Cooperative, alone or in a network. In foundations based on the principles almost all cases, these are cooperatives of sharing of gains and losses, using held by customers alone, but the exclusively the Conseil Supérieur des opening of the capital of the network Oulémas to give its notices of compliance. (formed as a public limited company) The text lays down the regulatory is sometimes found in large structures. framework for the creation, operation and We note that the term “Microfinance” is activities of participating banks and defines often refuted in financial cooperatives the points concerning the scope, deposits that more readily talk about financial and products marketed by the participating services to their members. banks. It also provides for the setting up of an audit committee to, inter alia, identify ¾¾ Joint-stock corporation under common and prevent the risk of non-compliance law but with variable shareholding of their operations with the advice of structures, ranging from the domination the Upper Board of Ulemas. Law 103.12 of private commercial investors applies to credit institutions and similar (commercial banks, investment bodies: banks, finance companies, payment funds, etc.) to structures sometimes institutions, microcredit associations, subsidiaries of international NGOs. offshore banks, financial companies, Caisse de dépôt et de gestion (CDG) and ¾¾ Association and other assimilated Caisse centrale de Garantie. forms (NGOs), but in almost all cases, without collecting savings. In July 2017, participatory banks became operational in Morocco. The The regulation of financial cooperatives first establishments can welcome usually involves a specific prudential customers and open accounts. However, approach, integrating the concept of a the ecosystem is not yet complete, which network, and according to the following limits the activity of these new banks. approaches: In an optimistic view, the completion of this ecosystem and the validation of ¾¾ Conducting prudential and financial other participatory instruments especially regulations requiring great technical and Musharakah and Mudarabah can boost financial solidarity, with the possibility forward the Islamic Microfinance sector in of consolidating certain standards. Morocco. 150

Islamic Microfinance 5.4.2.2 AT MACRO LEVEL inclusion and is generally of an entity emanating from the Ministry of Finance. At this level, we can distinguish between The promotion of the sector is articulated two main axes: generally through a national strategy or a sectoral policy letter, at the highest levels • Regulation and supervision of the of government. sector In Morocco, the sector has been heavily The Ministry of Finance is responsible for involved in promoting its development the drafting and presentation of drafts for through various initiatives and publications, banking laws in Parliament. It also adopts notably from the CMS and Jaïda (sectoral certain texts of a regulatory scope (decree, studies, sectoral meetings, the White Paper, bill). The supervision of the banking sector etc.). The Moroccan Government, on the (in the economic sense of the term), Bank other hand, has focused on expansion of Al Maghrib (“BAM”) by various laws, first the scope of AMCs; the introduction of tax for credit institutions, then for micro-credit incentives; the mobilization of financial (“AMC”). Thus, AMCs are, under the new resources for the sector; and strengthening Banking Law No. 103-12, assimilated to the sector supervision framework. credit institutions, and fully integrated in the perimeter of BAM’s intervention in Regarding the institutional, support and terms of both accreditation, regulation and advocacy framework addressing issues penalties. at the macro level, the Central Bank (BAM) has become the central actor of In charge of supervision and sectoral supervision and this has no reason to be monitoring until 2006, the government, called into question for microfinance. through the Ministry of Finance, sees microfinance as an important lever for The Ministry of Finance, through its role as the role it plays in financial inclusion, the bearer of the financial inclusion strategy, fight against poverty and the integration of should also naturally carry the microfinance economically weak, through the creation strategy, the pillar of financial inclusion. of jobs and activities generating income. The development of a microfinance The support for the development of the strategy is the first step in strengthening sector focused on broadening the scope of the sector’s representation and support AMCs; the introduction of tax incentives; framework and should be developed in mobilization of financial resources for the consultation with all stakeholders in the sector; and strengthening the regulatory sector. This approach will thus ensure that framework for the sector. all expectations are taken into account, ensuring the relevance and appropriateness • Promotion of the sector of the whole sector of this strategy. Promoting the microfinance sector is 5.4.2.3 AT MESO LEVEL mainly to facilitate the creation of an environment conducive to the emergence On the other hand, the meso level of the and development of microfinance. It microfinance sector includes all market and thus contributes to greater financial locally available services, which will enable 151

Islamic Social Finance Report 2020 the sector to support its development Ministry for Finance for approval. in particular to reduce the transaction costs of MFIs and increase their horizons * E nsure the implementation by (reach more beneficiaries), build capacity its members of the provisions of and encourage greater transparency. the law on microcredit and the Although the structure of the Meso level texts adopted for its application, varies considerably from one country as well as ethics, and refer to another according to several criteria the matter to the Minister for such as regulation, market maturity or the Finance. sector strategy, we usually find at least one professional association (PA). This * Propose to the Minister for association is usually in charge of the Finance any action likely to sector representation and often capacity promote the development of building programs. The more mature a micro-credit. sector of microfinance, the stronger the market infrastructure and the streamlined * A ct as an intermediary services offered. between its members and the administration and However, Brigitte Hems of the CGAP avoid exclusion of any other reminds us in her book, ‘Finance for All, groupings. Building Inclusive Financial Systems’, that different markets have need for different * D esignate its representatives on types of actors at this level. The Moroccan the micro-credit advisory board. sector, by its maturity, has a solid meso level and different organizations with * E stablish and manage any complementary missions, thus fulfilling common service that will foster most of the needs of the sector. the development of microcredit. The most important actors in the sector The FNAM has 13 member CMAs, including 3 major CMAs, which represent about 90% • The FNAM: In Morocco, the of market shares, and 10 small CMAs. National Federation of Micro-Credit There are, therefore, two groups of CMAs Associations (FNAM) created within the FNAM, each with different on 4 October 2001 under Law needs. The FNAM has historically suffered 18/97 governing micro-credit in from internal problems mainly related Morocco, is the legal representative to these differences in needs. It has of the AMCs in Morocco. The some ineffective governance within the responsibilities of FNAM, as set out organization, where the principle of one in its statutes (2008), are assigned vote per governing member implies that the to it By Article 23 of Law 18-97 on needs of large MFIs are underrepresented Micro-Credit as follows: in order to better respond to the needs and expectations of small CMAs, the Central * Establish the rules of ethics Bank encouraged the creation of Solidarity relating to the micro-credit Microfinance Network (RMS). The objective activity and submit to the of this network is to provide a number of 152

Islamic Microfinance services to its 8 members, starting with international references, enabling the use of a shared GIS, but also to be the it to renew and diversify its offer of voice of small industries and governments. services. However, this initiative was not held in view of the small number of meetings, but due to • Other actors at the meso level: the lack of an office operational efficiency A micro-credit advisory board and the still scattered use of GIS by all has also been set up under the members of the network. legal framework which governs the sector. It brings together • The Jaïda Fund: Regarding support representatives of the Ministry for the refinancing of the sector, the of Finance, Central Bank, FNAM, Jaïda Fund was a major player in and Moroccan banks in charge of the Microfinance sector in Morocco examining the maximum amount of and plays a key role in supporting micro-credits granted, the maximum small CMAs, particularly in terms interest rate than the solvency of refinancing and technical ratios of MFIs. It seems that this support. Jaïda has had a role board is no longer active today. during the period of crisis that the The Moroccan Centre for Banking sector experienced between 2008 Mediation was established in June and 2010 in the refinancing of 2013 and has started operations in the sector, in particular the AMC. March 2014 with the appointment Since then, Jaïda has sought to of its Director. Its role is to facilitate diversify its service offer in the dispute resolution between clients margins of its mission to provide and financial institutions. Its action the sector with new perspectives recently, as well as at international for interventions. Initially created to level, is still unknown to customers, ensure the refinancing of the sector both banking and microfinance. and contribute to the structural Thus, when most of the clients development of the sector through receiving micro-credit are not aware coordination and harmonization of of its existence, the number of activities of international donors. applications of microfinance clients would remain very low. • T he CMS: In terms of capacity building, the sector relies on the Regarding the institutional, support and CMS which plays a leading role advocacy framework addressing issues through its training center, the at the Meso level, the target infrastructure only one dedicated to the sector in of the microfinance sector (meso level) the kingdom. Beyond this primary should include the following functions: mission, the center is also as a representation, training, financing, and microfinance observatory and observatory. There is no standard model of supports micro entrepreneurs, representation in the sector in the world. notably through financial education The representation of the sector can be but also marketing of their done through one or more associations, products. The CMS has developed be legislated or not, with compulsory or relationships with local and voluntary memberships. 153

Islamic Social Finance Report 2020 the “traditional banking sector”, whether for savings services or for The professional association representing the provision of credit; in Morocco, it its members at the level of the seems that many AMC clients have supervisory authorities is responsible a bank account, but that they are for advocating the sector in order to not interested or able to give them ensure the development and promotion credit for their income-generating of an environment favorable to the good activities. development of its members. In this context, and according to the expectations —— Specific operating procedures, not of the various AMCs and even different only in terms of the “standing” of the types of MFIs (assuming that the sector is agencies but also in the method of open to new MFI statuses), MFIs could be instruction of credits. The analysis represented through several professional is carried out preferably by the associations (which is widely the case client, less in terms of his books throughout the world in the flagship of account than the appreciation markets of microfinance). The important of his entrepreneurial activity. This thing is that all MFIs are represented is particularly true for individual according to their expectations and that all credit for small businesses (20,000 the actors contribute to the development of to 50,000 Dh) and partly for small the sector. business credit (from 50,000 Dh). We note positively that the meso level in —— A social vision often more Morocco is already endowed with a rich developed than in banking. This diversity of actors who contribute to the must, however, be qualified. On the accompaniment and development of the one hand, because the banking sector (training organization, refinancing, sector in the world (and in Morocco) risk centre, observatory, financial education, is known as a cooperative bank, it etc.). All the needs are thus covered and is not intended to distribute profits the related actions can be coordinated to shareholders / members, or to within the framework of a financial enable them to realize a capital inclusion strategy including microfinance. gain on the resale of their shares. On the other hand, because of this Finally, and regarding the target legislative undeniable social dimension, it and regulatory framework for MFISs, does not detract from the obligation microfinance consists of bank operations to be structurally profitable, for an and a few ancillary operations but for obvious reason of financial viability. the benefit of specific populations, with specific operating methods and often with —— These characteristics show that a more developed social vision than in the microfinance is not an isolated banking sector: compartment of the financial sector, but that it is part of financial —— Banking operations - the profession inclusion, that it is a “pre-banking” of assuming lucrativeness and (a term used by certain actors in habit. Morocco) that could contribute to “mass banking”. —— Special populations, namely a clientele of persons excluded from 154

Islamic Microfinance 5.4.3 ISLAMIC MICROFINANCE • Babrizk Morocco was also an INITIATIVES initiative which came very close to being an Islamic microfinance The microfinance sector in Morocco does institution. The loans provided by not yet have a single Islamic microfinance Babrizk were at 0% which resemble institution. However, initiatives have Qar� �asan. However, the loan fee been taken in the past decade to start a was considerably high close to 25% Sharī‘ah compliant microfinance institution. of the value of the loan. Although Although this has not been achieved yet, the fee was quite heavy, these loans we will briefly discuss what we consider were very popular especially among to be some important initiatives on three the population who carried at heart different levels of programs, funds and Sharī‘ah compliance. simple MFI. • O n the other hand, the Jaidi Fund Over the years many financial had been a very important actor entrepreneurs saw the great potential in whose name appears in many Islamic microfinance institutions. However, Islamic microfinance initiatives. the legislation few years ago only allowed However, many of those initiatives them to operate as association. Since seem to have reached an impasse. then they were integrated in the banking In 2014, a memorandum between and microcredit law greatly increasing the Jaidi and the Islamic Development potential. Bank was signed to create a fund of 70 million aiming at investing • Kahsb is one of the examples of and encouraging the creation of Islamic microfinance institutions microfinance institutions. The most conceived but that never recent information on the project materialized. In 2013 with a strong is that it has been on standby business plan and a multitude of for couple of years now in the meetings scheduled during an Ministry of Finance. Lastly, 4US entire year to gather investors and and Jaida worked very closely on promote the MFI, Moroccans were developing a strategy to create an looking forward to starting the first economic empowerment program Islamic microfinance institution in aiming at converting a number of Morocco. Sixty million dirhams were microfinance institutions to work going to be the investment for the on an economic empowerment first year with an objective to raise approach. Both actors were involved the capital of the second year. The in the creation of the only economic business plan stated that 90% of the empowerment institution in North turnover was going to be through Africa, ZitounaTamkeen. Murabaha and a share of 10% of the market was going to be aimed at. 5.4.4 ISLAMIC CROWDFUNDING The reason behind giving up on the OR COLLABORATIVE FINANCING project remains unclear. Crowdfunding platforms started to appear in the Moroccan market in 2014. The 155

Islamic Social Finance Report 2020 platforms include Afineety, Smala & Co, On 2 March 2018, the Ministry of Economy Cotizi and Atadamoune. Out of these four and Finance issued the presentation platforms, only two are exclusively focusing note No. 15-18 to present a draft law on on Moroccan projects: Smala & Co (located Collaborative Financing or Crowdfunding. in France) and Cotizi14. The Cotizi platform Recently, on 22 August 2019, the draft published some studies on innovative law was approved by the government practices, such as the crowdfunding council, provided that its observation and barometer for Morocco 2014 and on comments are taken into consideration by developing innovative solutions and apps the general secretariat of the government in order to boost the rise of crowdfinance. and the ministry of finance and economy16. In 2015, the same platform, besides On 22 February 2020, the former draft law crowdfunding services, launched an online was adopted by the parliament. petition feature to be the 1st platform offering that in Morocco15. To shed light on some of the provisions of the law, the first article defined These platforms were working in the crowfunding or “collaborative financing” absence of legal framework related to as fund collection operations via an crowdfunding. In April 2016, Wali Bank electronic platform called collaborative Al Maghreb announced a plan to prepare financing platform (PFC) managed by a specific law and regulation regarding collaborative financing company (SFC). crowdfunding. Today, Morocco is a country The first chapter (section 1) defined and with great potential just waiting to be presented the providers of crowdfunding tapped. In this sense, the crowdfunding and distinguished between three categories represents an incredible opportunity for of crowdfunding: 1) Investment operations, financing diversification. 2) Loans operations with or without interest 14 http://www.cotizi.com/blog/le-crowdfunding-au- 16 http://www.sgg.gov.ma/Portals/0/ maroc conseil_gouvernement/CR/2019/CR_CG_22.8.2019_ 15 http://www.cotizi.com/blog/le-crowdfunding-au- fr.pdf?ver=2019-08-28-125641-703 maroc 156

Islamic Microfinance and 3) donation operations. Article 5 5.4.4 STRATEGIC ANALYSIS & clarified the nature of these operations and RECOMMENDATIONS mentioned that they are not included in the framework of the new banking law 103-02 Strengths: or Law 44-12 or 004-71 related to call for public savings and generosity. • A strong and popular demand for Sharī‘ah- compliant products in Morocco. Article 9 (chapter 2) specifies that the collaborative financing company (SFC) • The market represents a potential of 2 must obtain agreement from Bank Al million beneficiaries. Maghrib for loans and donation category and from the Moroccan Capital Market • The existence of a very strong Authority (AMMC) for the investment background of microfinance and well- category. Article 48 stipulates that the developed experience in the sector is a collection of funds can be for profit or non- positive aspect. profit activities. Section 1 describes the investment category operations, while the • The network of microfinance institutions loans category operations are described in around the kingdom will facilitate the section 2 and donation category in section. integration of Islamic microfinance. The draft law project reserves section • The institutions no longer operate as 5 (Articles 57 to 63) to describe the associations but as MFIs under the participatory or Islamic crowdfunding supervision and jurisdiction of the central operation or participatory collaborative bank. financing, which stipulates that the contract characteristics will be determined by Bank • The microfinance sector is considered Al Maghrib and the high council of Ulemas. by highly ranked officials and the elected In this regard the SFC must send an annual institutions of the kingdom as a very report to the high council to assure the important axe that can contribute compliance to their opinions and guidance. significantly to the development of the The participatory banks in Morocco national economy considered as account contributors for this category and will handle the SFC bank Weaknesses: accounts and use the Takaful operators to ensure their operations. • The implementation of microfinance institutions remains quite recent in This new legal framework may offer a huge Morocco and thus still has a long way to opportunity to integrate crowdfunding promote and encourage on joining the in Islamic finance in general and Islamic sector. Microfinance in particular, facilitate the operations of Islamic Microfinance • A lot of time has been spent on institutions and enhance their role developing a single product rather than in financial inclusion and economic focusing on the entire sector. empowerment. • Endowment remains poorly developed in Morocco although this could be an important source of investment for the sector. 157

Islamic Social Finance Report 2020 Recommendations: Opportunities: • The creation and the development of a network • The opening of participative banks in in the MENA region to Morocco opened a vast horizon for promote and assist Islamic Islamic microfinance institutions as microfinance institutions, windows of the banks. but also to facilitate their integration in the economy of • The existing law on microfinance in each country of the region. Morocco allows the MFIs to include Islamic microfinance products. • A close cooperation and the development of partnerships • The interest of many foreign funds between the different and entities to invest in Morocco is a institutions operating in other great opportunity to focus on Islamic countries in the region to microfinance. benefit from every experience. • The existence of some consultancy • F ocus on the development of firms which showed a high level of waqf empowerment which is a experience and readiness to work on new approach to waqf and can this sector. be one of the main sources to financing Islamic microfinance • S ome Moroccan companies worked or economic empowerment for years on developing Management institutions. Information Systems to closely assist MFIs in achieving their goals. • Raise the awareness of all involved actors to focus on • The presence of Jaida, a very strong providing the infrastructure for actor of the sector in Morocco, which social and economic inclusion holds shares in Zitouna Tamkeen, the rather than financial inclusion only economic empowerment MFI only. using Islamic business models in the Maghreb region and using a Moroccan • Finally, differentiate between MIS known as 4US. Islamic microfinance and economic empowerment as Threats: two different approaches to poverty alleviation both using • C onfusing the potential clients Islamic finance products. The between Islamic and conventional objective is to identify the more microfinance. significant impact of economic empowerment on fighting • A doption of Islamic microfinance poverty. products by some existing MFI might focus just on the form and neglect the spirit of the Sharī‘ah. • A dopt single products that will focus on giving loans rather than on an economic empowerment approach and objective. 158

Islamic Microfinance 159 5.5 TUNISIA 5.5.1 OVERVIEW OF THE SECTOR The Tunisian experience has two basic stages in microcredit and microfinance. The political changes that took place in 2011 played a pivotal role in the change of the state policies. The first phase17 started in 1960, through the creation of “Caisses Locales du Crédit Mutuel” as part of the implementation of development programs funded by international organizations such as International Fund for Agricultural Development (IFAD) and the World Food Program (WFP), which made the experience one of the leading experiences in the Arab world. In 1979, some development cooperatives18 such as APPEL, FTDC, SAVE THE CHILDREN, ASAD, ATLAS, FONDATION LE KEF and UTSS introduced the microcredit component to their development projects to contribute to the reduction of unemployment and job creation. These efforts were supported in the early 1980s by the Fonds de Promotion de l’Artisanat et des Petits Métiers19. In 1995, Enda Inter- Arabe20 was founded and since then, it has disbursed 2 million micro loans, totaling TND 1.9 billion. Since its inception, the organization has been able to introduce microfinance in Tunisia in accordance with international standards, thus creating an opportunity to penetrate the market that is currently estimated at 1.5 million and potential project promoters. On 21 May 1997, the Tunisian Solidarity 17 The site of the supervisory authority for Microfinance in Tunisia 18 Known in Tunisia as development NGOs 19 A fund to promote crafts and small crafts 20 Enda Finance is a small credit institution that

Islamic Social Finance Report 2020 Bank (BTS) was established by a a distinctive leap in the field of Islamic presidential decree with the objective to microfinance and microcredit. In 2011, achieve the maximum social and economic Taysir Microfinance22 was established impact for the economic and financial with the assistance of the French ADIE integration of the poor. On 22 December Association and was granted the Ministry 1997, the BTS held its constituent meeting of Finance’s license to operate on 28 March to open its doors in March 1998 to finance 2014. In the same year, Microcred-Tunisia23 micro projects up to 90% of their value. was established and started its activities In 1999, the system was strengthened by on 3 November. In 2013, ADVANS24 was specialized development cooperatives established in Tunis with the support that provide micro-loans aiming to assist of international and Tunisian investors. the economic and social integration of the Following the authorization of the Tunisian entrepreneurs by financing the purchase Ministry of Finance, the company opened of small production equipment or working its first branch on 13 March 2015. On 21 capital. It can also be granted to improve April 2015, CFE25 received the Ministry of living conditions. BTS loans have been Finance’s approval for its official launch limited to TND 5,000 at 5% interest rate on 2 June 2015. Following the changes in and a repayment period of up to 3 years. the Tunisian scene, Enda organization was Target beneficiaries of these loans are transformed by establishing an entity fully individuals belonging to needy families dedicated to microfinance services that and vulnerable groups who can exercise obtained the approval of the Ministry of continuous or qualified activity and conduct Finance on 31 December 2015. business as well as unemployed people. In the framework of the State Regional With an environment disposed to opening Development Program, Qar� �asan21 and more to Islamic financial products, Zitouna small grants were granted in the light of Tamkeen was granted its operating license a proposal by the State Council and for in May 2015 and started its activities the benefit of unemployed young people in August 2016. It is the first Islamic from poor families whose income does Microfinance institution in Tunisia and the not exceed TND 1,500 per year. The State first adopting the Economic Empowerment supported these projects, which must not approach in North Africa. Moreover, the exceed TND 3, 000, corresponds to a grant products of the BTS were supported by from the state equal to 10% of the value of the Mourabaha product in partnership the project. The loan is amortized over 4 with the Islamic Development Bank, which years without surplus and after a two-year was concluded in 2012 and the projects grace period. funding started by the end of 2015. Since 2011, the situation witnessed the birth of The second phase was triggered by the some development associations26 that radical political changes that took place in Tunisia in 2011, which is considered 22 Company’s website 23 Company’s website promotes the Tunisian financial scene, an article by the 24 Company’s website Princess of Fishing on 07 January 2016 published on the 25 Company’s website website of Wajjahni http://wajjahni.com 26 As part of the guidebook for creating projects 21 Women and Children’s Rights Support through from zakah funds, many associations have been contacted Information Technology http://wrcati.cawtar.org in an official and informal manner. Most cooperatives 160

Islamic Microfinance used primarily the mechanism of material and promoting mechanisms of finance and donation and Qar� �asan coming from the guarantee. Dozens of programs, structures funds of Zakāh and charity. and funds were created, at the time, mainly by a presidential decree and laws were 5.5.2 MICROFINANCE POLICY & introduced afterwards. However, there was REGULATORY FRAMEWORK absence of a leading and coordinating structure to avoid programs and initiatives The Tunisian government has defined overlapping. At this first phase, the many financing policies pertaining to actors of the sector were governed by the microfinance. These policies have targeted following regulatory and legal framework: different sectors and different social groups. • B TS: Since its inception, it has been subject to the presidential decree In the first phase27 28 , the Tunisian State issued on 21 May 1997. went on to stimulate the formation of institutions within an integrated strategy • E nda: Since its establishment, it was based on several mechanisms aimed at governed by Law No. 25 of 1992, further developing the culture of initiative, dated 20 April 1992 and a special attracting and enlightening young people exemption delivered by the Ministry of Finance in May 2005 to apply a work according to their programs to fight poverty and higher interest rate than the one unemployment without these programs being subject to used in the market29 . sufficient conditions and guarantees for success. 27 Mechanisms of creating projects funded by 29 According the “Market study of Microfinance Islamic Microfinance “Ali Said” in Tunisia” that have been prepared by IBM Belguim 28 Since starting the application of the Tenth in 1431/2010 on behalf of EUROPEAID, quoting the Development Plan (1422/2002-1426/2006) “Authorization No. 139 of the Ministry of Finance” for Enda-Inter Arabe microcredits granting, that allow it to 161

Islamic Social Finance Report 2020 • Development cooperatives providing • I nvolving the private financial sector micro-credits: Subject to Law No. 67 in Microfinance operations. of 1999 of 15/7/1999 • Promoting and supporting the In the second phase30 31 , there was much growth of the Microfinance industry talk about the need to prepare a vision for the through the establishment of an future to strengthen the microfinance sector. institutional infrastructure. In October 2011, a document was prepared by the Ministry of Finance containing32 “The In the second phase, microfinance actors concerted vision of the Microfinance sector start to be subject to the following legal in Tunisia”. In that period, the government and regulatory framework : sought to establish this approach as a basic solution in fighting against poverty and • All types of microfinance unemployment, mainly aiming at reaching institutions are subject to the Law out to the various segments and changing No. 117-2011, which provides the their reality. The ultimate purpose of this possibility of establishing private approach was the financial inclusion of financial institutions (limited excluded populations, achieving harmonious companies) to finance micro- development and strengthening the enterprises, provided that their economic fabric. Among the pillars of this capital is not less than TND 3 approach are the following: million. • S etting the basic regulatory • Development cooperatives are framework33 to oversee the subject to the provisions of Chapter development of the sector. 58 of Law 117-2011, which was revised by another Law No. 46- • C ontributing to the development 2014 of 24 July 2014, to enable of regions and priority sectors, development cooperatives to supervising a detailed market study, continue their financing if the capital better understanding of the needs is not less than TND 50,000 of target clients and developing the appropriate framework for • T he BTS has been restructured Microfinance development. into an integrated bank providing additional services such as bank • S tructuring the sector and the various accounts structures and restructuring the BTS. • T he BTS was entrusted to offer apply “an interest rate which takes account of the actual murāba�ah product in accordance expenditure necessary for the microcredits granting and with the refinancing agreement especially between the Tunisian Government The cost of resources, management and training operations and the BTS on 27 November 2012. and operating fees” The new laws also provide for the possibility of providing conventional 30 The site the supervisory authority for Microfinance and Takaful34 Micro-insurance in Tunisia products35 ; 31 After 2011’s major political changes 32 It is the result of consultations a range of 34 Insurance Journal Revised by Law No. 2011 -117 stakeholders of the sector of 5 November 2011 33 Microfinance Gateway, www.microfinancegateway. 35 i.e Microfinance institution could only market org insurance/Takaful products that have been issued by an established insurance company. 162

Islamic Microfinance • Establishment of a supervisory 5.5.3 ISLAMIC MICROFINANCE authority for the Microfinance sector INITIATIVES under the Ministry of Finance36. Knowing that the Islamic microfinance These laws and revisions led to: sector is in its beginning phase, we may treat what appears to us the most • Setting the ceiling of financing significate experiences which are those of amount at TND 20 for microfinance the BTS and Zitouna Tamkeen MFI. limited companies37 . 5.2.3.1 QAR� �ASAN PINANCING PROGRAM • S etting the ceiling of financing AND YOUTH EMPLOYMENT SUPPORT PROGRAM amount at TND 5,000 for (YES-TU)39 Development Associations38. The BTS financings could reach TND • S etting loans granted to improve 150,000 and are mainly aimed at university living conditions at TND 3,000 graduates to support them in creating for MFIs and TND 1,000 for SMEs. Therefore, its activity belongs to Development Associations. meso-financing rather than micro one. In the last decade, the BTS was entrusted • Development Associations can to implement an IsDB program based on obtain loans from the BTS to Qarḍ Ḥasan financing. We do not have strengthen their budget. However, detailed information about the program they should not exceed an annual characteristics and outcomes. A few years interest rate of 5% in addition to later, the BTS was entrusted to implement a 2.5% commission paid by the the YES-Tu program. This program is based beneficiary by loan. on a Muḍārabah agreement between the IsDB and the Tunisian Government on All the current MFIs and Development 28 February 2012 with a value of USD 50 Associations are under the supervision million. The program aims at economic of the Microfinance Supervision Authority and financial empowerment of young (ACM), the governmental institution people, especially university and vocational that have been created by the Ministry training graduates40 , by financing the of Finance and which is entrusted to launch of small projects. It is expected that supervise the Microfinance sector. It is this program contributes to improving the expected that the supervisory function living conditions of the various targeted will be entrusted, at least partially, to the beneficiaries. The granted institutional Central Bank of Tunisia (BCT) at a later support for the program implementation stage. The Supervision Authority was amounted to USD 320,000. The kick-off established in 2012 and it is composed of workshop was done on 6 and 7 May 2013 9 officials and its board is composed of 8 and the first financing was granted in members meeting periodically. December 2015. 36 For more information, see the law number 2128- 39 Bank Brochures 2012 dated 28 September 2012 40 As well as small farmers, artisans, people with 37 Order of the Minister of Finance of 18 January special needs and skilled workers 2012 fixing the ceiling amount of the microcredit and the conditions of its grant by the microfinance institutions 38 Ibid 163

Islamic Social Finance Report 2020 The Bank has witnessed major challenges • Quality Assurance Committee: Its in strengthening its Islamic products main tasks are to ensure the Project offer. This required the creation of several Implementation Unit complies committees and structures to ensure with the policies and procedures the effective implementation and good approved by the Board of Trustees governance of the project: and to monitor and follow up on the implementation of the detailed • B oard of Trustees: Its main project plan in terms of quality and functions are strategic decision- compliance with the timetable. making, development and approval of general implementation policies The program partners are the supporting and adoption and amendment of structures of the Bank, Development internal regulations. It has also been Associations delivering microcredits, entrusted with approving financial universities, higher education institutes and reports, budgets and various technical training centers. administrative reports, monitoring the work of the committees, To properly structure a murabaha product coordinating them and following up and implement the program, the Bank has the work of the Project Management contracted a Tunisian expert in the field Unit. of Islamic banking. In addition, a Sharī‘ah Board has been established to ensure • Advisory committee: Its main the Shari’ah compliance of the program tasks are to assist the Board of operations. Also, an internal Sharī‘ah Trustees in developing a strategy for auditor has been appointed reporting to the implementing the program, studying Sharī‘ah Board. the needs of the target groups and identifying project opportunities Although the financing started almost in cooperation with the Technical 2 years ago, the Bank has achieved Committee and the Program several positive results41 42 . A total 1,091 Implementation Unit, coordinating entrepreneurs were financed with a value of with the advisory structures, TND 38,332,153, which created 2128 jobs technical structures, civil society divided as follows: and university experts, and ensuring effective project implementation These funds enabled the creation / and facilitating the exchange of expansion of projects and targeted experiences. different segments and different categories: • T echnical Committee: This is 164 composed of experts from the An information system module was sectoral ministries and the BTS developed to manage the murabaha to assist in the implementation of product. Training and several workshops the program. Its main tasks are to have been organized for concerned assist the Program Implementation employees to ensure the full control of Unit to adhere to the policies and the new component. It is expected that procedures approved by the Board of Trustees and to reach project 41 Tunisian Solidarity Bank goals. 42 This was explained by the appropriate number of branches and the Tunisian citizen’s thirst for Islamic financial products.

Islamic Microfinance Sector Total financing Jobs created Number of loans Agriculture 529 072 Traditional industries 1 139 255 24 15 Small jobs Services 14 553 280 81 30 Total 22 110 547 38 332 153 897 422 1 126 624 2 128 1091 the Bank would start to provide refinancing for the Development Associations under this program. Classification per Number of Total Jobs education level financed financing created persons Higher educations 19 443 177 927 457 Other levels 634 18 888 976 1 201 Classification per Gender Female 305 10 450 053 611 Male 786 27 882 100 1 517 Classification per project stage Creation 876 30 731 479 1 695 Expansion 215 7 600 674 433 5.2.3.2 ZITOUNA TAMKEEN (ZT)43 2016 and its actual operations started in August 2016. It currently provides It is the first Islamic microfinance financing not exceeding TND 20,000. The institution in Tunisia, adopting the institution enables customers to acquire Economic Empowerment approach in equipment, raw materials and commodities accordance with Islamic finance principles. at a competitive cost. The Islamic MFI is It obtained its operations license in May trying to widely introduce the concept of economic empowerment throughout media 43 Interview with Dr. Nabil Ghallab (ZT President presence and a series of partnerships & CEO), published on the website of Wajahni at http:// with various sectors stakeholders. These wajjahni.com 165

Islamic Social Finance Report 2020 efforts made some actors understand the • T he correlation of many activities importance of this approach, adopt it and with the tourism sector, which is a become real partners in the execution of sector that proved in the first phase projects. to be useful in bringing adequate economic activity. After the 2011 5.5.5 STRATEGIC ANALYSIS AND dramatic changes, the sector RECOMMENDATIONS became fragile, especially due to the terrorist attacks and protest Strengths movements, which negatively affected the other sectors. • T argeting various sectors: traditional industries, small • A dopting only the murabaha businesses, agriculture and product and using it in all fields is services. unpractical. • Targeting various social groups: • S mall projects are facing fierce ages 18 to 50+ years and the level competition by bigger institutions, of education including Analphabet, in addition to administrative and Primary, Secondary and Higher bureaucratic complications. This Education. made them experimenting very difficult44 . • The responsiveness of the supervisory authorities, the • High cost of microfinancing, which Microfinance Control Authority negatively affects the profitability of (ACM), to Islamic Microfinance projects. actors with respect to providing them with the necessary regulatory • Lack of a vision facilitating rural ground to provide new Islamic investment for investors that will finance products. enable them to reach markets in the best conditions and at the lowest • Several incentives have been cost. approved. • Lack of a strategic vision to Weaknesses accelerate the development of the Microfinance sector (facilitating • Microfinance programs targeting the opening of branches, product rural areas have not managed to development, micro-insurance, reduce rural exodus towards coastal refinancing mechanisms, etc.). states, which has particularly weakened the agricultural sector. • L ack of training for workers in the field of Islamic microfinance • A lthough the state seeks to develop whether in associations or for-profit rural infrastructure to ensure that companies. projects could be developed and to create incentive areas, the overall 44 A study belonging to Ayda Azza, published in the situation remains unpromising. book “Mechanisms of the project launch through Islamic Financing”, Ali Saeed 2014 Mayara for publication and 166

Islamic Microfinance • W eak knowledge of the financial, • A large group of entrepreneurs are administrative and accounting excluded from the financial sector essentials by the owners of small given the scarcity of adequate projects or those wishing to invest. Islamic finance institutions and programs. • F ailure to apply one of the safety standards in Islamic microfinance, Threats which is the necessity of ensuring the eligibility of the beneficiary. • F requent political disputes and the disruption of many laws regulating • R igidity of the current legal the various fields of Islamic framework, being not flexible Economy. enough to fit the specific regional or sectorial needs. • Poor demand for Tunisian made products due to fierce competition Opportunities by imported products that have a better quality and lower prices. • The large number of potential microfinance clients to satisfy: from • Continuity of export volatility 400,000 to 1,400,000 clients45. towards Libya and Algeria. distribution IsDB Group, CIBAFI, Thomson Reuters, Zawya, 2013 45 Tunisia Islamic Finance Country Report, IRTI / 167

Islamic Social Finance Report 2020 financial resources through viable institutions. Recommendations46 • Implementation of reforms that • Work on financing the economic promote access to financial opportunities of small investors services. and entrepreneurs, especially the poorest rural populations, through • E nhancing the concept of the provision of integrated Shari’ah- Microfinance and empowering compliant financial services in the the target groups according to form of grants, loans, financing, best practices, achieving financial deposits and savings accounts, etc. sustainability and developing income generating activities in • E stablishment of a fund to cover these areas, as well as actualizing the lack of guarantees for the most the process of expanding these vulnerable ones. important sectors, whether in grazing, handicraft, agriculture or • Simplifying documentary other economic activities. procedures for microfinance clients according to the nature and • Integration of the rural poor into the potential of these clients. main financial services to acquire saving and repayment habits. • C ontributing effectively to reach the largest number of beneficiaries • Redrawing the industrial map in in rural areas, by encouraging the such a way as to ensure that micro- opening of branches in the interior enterprises and large enterprises play complementary roles. It can • Mobilizing large new investments be modeled according to the Indian in rural infrastructure, agricultural experience, which adopted a system research and agricultural guidance that forces large companies to services. leave more than 1,200 products for smaller enterprises. This has • Facilitating the spread of low-cost forced them to adopt handling as a financial services through Internet platform. and mobile phones. • P roviding suitable ground for these • Updating legislations and laws projects, especially regarding to ensure transparent and clear competition, administrative routine execution of contracts. and instability of prices of raw materials. • The need for complementarity between donors for Microfinance • A mending the current accounting and private capital, rather than standard (or issuing a new one) to competition. fit the needs of Islamic microfinance actors. • T he need to ensure that the poor and the unemployed have access to 46 Based on a study of Hussein Al-Asraj 168

Islamic Microfinance 5.6 SUCCESS STORIES & strengthens the various links in the value GOOD PRACTICES chains and promotes synergy between the various players in it. A fundamental 5.6.1 ZITOUNA TAMKEEN, pillar of the EE approach is to ensure the TUNISIA sustainability of micro-projects. Key ideas: Economic Empowerment To achieve its vision, the institution through Islamic Microfinance created “Tamkeen for Development (T4D)”, an NGO specialised in delivering Introduction trainings and capacity building to the beneficiaries, and it is currently creating Zitouna Tamkeen is the first Islamic the “International Center for Economic microfinance institution in Tunisia Empowerment (ICEE)”, specialised in adopting the approach of Economic conducting studies and structuring Empowerment (EE) in North Africa. The Economic Empowerment projects and institution was founded by Zitouna Bank47 products. , IsDB and some important local and regional actors, such as Zitouna Takaful48, The Model Poulina Group Holding, Delice Holding and Jaida Fund for Microfinance. The The Economic Empowerment model institution’s mission is “to participate in adopted by Zitouna Tamkeen lays on the financial and economic inclusion of six fundamental pillars that aim to disadvantaged populations by adopting remove the 6 barriers of entry to the an innovative Economic Empowerment entrepreneurial world: (EE) approach via the tools of Islamic microfinance”. Zitouna Tamkeen has 1. Finding investment opportunities. the vision of “becoming a major pillar of Islamic microfinance at a national and 2. Access to strong partners international levels”. supporting their projects. The EE approach, adopted by Zitouna 3. Access to markets through Tamkeen, is an innovative approach business partnerships. formulated by IsDB, to achieve high socio- economic impact in its member countries. 4. Valorisation of the skills and The approach considers the poor as competencies of the micro- a partner and not as a burden. The EE entrepreneur. institution, such as Zitouna Tamkeen, acts as a link between the upstream 5. Access to an adequate support (production) and the downstream infrastructure. (marketing) in a value chain. The financing of EE and capacity building projects 6. Providing the appropriate funding. 47 The largest Islamic bank in the country 48 The first Takaful company in the country The following chart illustrates the Business Model of Zitouna Tamkeen: 169

Islamic Social Finance Report 2020 Chart 1: The Business Model. (4) Business Relation/ Business Microprojects Economic & Strategic Partner (3) Zitouna Tamkeen (1) Projects study, (2) Business partnerships Training, Financing for Economic Engineering Empowerment of Economic Empowerment Social Impact resources and infrastructure necessary to navigate, produce and Zitouna Tamkeen does not only market; measure its performance through financial indicators but most • Enabling them to obtain necessary importantly through social and financial resources and increase economic impacts which are them; demonstrated by: • Enabling them to obtain adequate • D eveloping economic abilities income; and so that they can manage their daily lives; • Support them until they can independently manage • E nabling them to effectively administration and make participate in economic appropriate economic decisions. projects; The following chart illustrates the Business • E nabling them to obtain Model of Zitouna Tamkeen: 170

Islamic Microfinance (4) Business Relation/ Business Partnerships Microprojects Economic & Strategic Partner (3) Zitouna Tamkeen (1) Business partnerships Projects study, (2) Training, Financing, for Economic Engineering Empowerment Projects Assistance and of Economic Follow-up Empowerment Business Model Projects Social Impact • S upporting them until they can independently manage Zitouna Tamkeen does not only measure its administration and make performance through financial indicators appropriate economic decisions. but most importantly through social and economic impacts which are demonstrated Halib ElKheir Project by: In partnership with the Tunisian leader of • Developing economic abilities so the dairy industry, Delice Holding (DH), that they can manage their daily Zitouna Tamkeen has launched a major lives; project in the north-western and central regions of Tunisia, 2500 small-scale • Enabling them to effectively breeders will benefit from the project that participate in economic projects; will include the financing of purebred herds, milking equipment and securing an outlet • Enabling them to obtain resources for their productions by DH. This project and infrastructure necessary to includes a training and technical assistance navigate, produce and market; program provided by livestock advisers. To ensure the sustainability of this business • Enabling them to obtain necessary model, DH also acts as an off-taker and will financial resources and increase ensure the purchase of all the production them; from the small farmers. • Enabling them to obtain adequate 171 income; and

Islamic Social Finance Report 2020 (5) (6) (7) Payment Payment Milk Farmers and delivery Delice Holding Breeders (4) Collection (1) Centers Milk Business production partnership for (8) Zitouna EE project Tamkeen (3) Deduct instalments (2) Training, financing, on behalf Engineering of assistance and of Zitouna EE Project follow-up Tamkeen Business Model of “Halib ElKhir” Project Bee.preneur Project Zitouna Tamkeen also built a project based on the EE approach to provide small traditional beekeepers with modern technology to improve the quality of honey and increase its production in a partnership with the first innovative tech start-up in the beekeeping sector in Tunisia, IRIS Technologies. As part of this partnership, IRIS Technologies will provide beekeepers with electronic cards dedicated to the extraction of internal data from hives, thus determining their yields by ensuring the maximum traceability of the different links in the beekeeping value chain to further enhance the production of the hives. 172

Islamic Microfinance (5) (5) Honey Payment Beekeepers IRIS (1) Technologies Business parternship (3) for EE Project Training, financing, Zitouna Local market assistance Tamkeen in the first and follow-up stage and the (2) (6) international Engineering Payment market in the of EE project second stage (8) Payment (7) Honey The Business Model, Bee.preneur Project. Financing Methods training is provided by Zitouna Tamkeen staff and its partners. Assistance Zitouna Tamkeen aims to offer a wide and support during the lifetime of the range of financing products adopting the microprojects are an essential component instruments of Islamic Finance. Currently, of the services offered by Zitouna the main products are the Murabaha to the Tamkeen. Purchase Orderer and Qar� �asan. The authorization of other Islamic financing Engineering of Economic Empowerment instruments is under approval by the Projects supervisory authority. Zitouna Tamkeen is the only microfinance Non-Financial Services institution in the country that has a project engineering department. It focuses on A fundamental pillar for the success of creating projects taking into consideration microprojects is capacity building through the value chain of the business area, with access to training adapted to the skills the objective to contribute significantly required for the microproject success. to job creation and to reach the greatest This includes technical training (in the number of beneficiaries. specific field of the microproject), and managerial training (soft skills training, Risk Management sales techniques, marketing, etc.) related to the project finance and operations At this stage, the most crucial risk that management of the microproject. This Zitouna Tamkeen faces is the default risk. 173

Islamic Social Finance Report 2020 Its risk management strategy includes • T he law does not authorize the establishing smart partnerships with development of a range of micro- different partners to guarantee the best insurance services (sickness, travel, quality and prices of goods when financing project, livestock mortality, etc.) with Murabaha, and to ensure a market and although the law authorizes MFIs buyers (off-takers) for the beneficiaries. to commercialize them on behalf of Also, the monitoring and evaluation unit insurance companies; is responsible for ensuring the financing is directed towards the growth of the • The absence of tax incentives project and not used in other ways for for microfinance institutions to personal consumption. In addition, staff intervene in regional development refer to the Credit Bureau to assess the areas through economic beneficiaries loan history and whether empowerment projects; they can be granted more financing. A credibility check is also made along with • T he funding threshold for the beneficiaries’ qualifications and skills microfinance institutions (currently set. Weekly meetings are made to check TND 20,000) does not permit default cases to identify the causes and the institution to reach more find appropriate solutions. Moreover, as beneficiaries and projects; part of the financing, beneficiaries are provided with the necessary training • The current law does not permit the and the skills required to manage their financing of small enterprises in the projects financially. In addition, Zitouna form of companies; and Tamkeen offers micro-takaful services for its beneficiaries through existing Takaful • C rowdfunding is not regulated. companies in the market. 5.6.2 AL-BARAKA BANK OF Challenges ALGERIA MICROFINANCE EXPERIENCE, ALGERIA49 As of today, Zitouna Tamkeen faces several challenges operating as a microfinance Key Ideas: Financing micro-projects and institution in Tunisia: women doing domestics IGAs. • T he absence of a national guarantee Introduction fund dedicated to the microfinance sector; Al-Baraka Bank of Algeria is a member of Al Baraka Banking Group. It was incorporated • T he lack of local solutions for in May 1991 as the first Islamic Bank in the the refinancing of microfinance country and operates under a commercial institutions and social investment banking license issued by the Bank of funds; Algeria. The main activities of the bank are retail and commercial banking. The Bank • M icro-savings are not authorized by operates 30 branches. the law; 49 Paper “The Algerian experience in Shariah 174 compliant Microfinance’, Nacer Hideur, presented during the Kick-off Workshop of the “Islamic Social Finance Report”, held in Tunis on 10 June 2017 and co-organized by IRTI (IsDBG) and Zitouna Tamkeen MFI

Islamic Microfinance The experience of Al-Baraka Bank of management party, with the objective Algeria in Islamic Microfinance was to launch the Microfinance activity as a initiated in the framework of development banking product but with the management project in the city of Ghardaia, funded by and supervision of a specialized entity. the German International Cooperation Program (DEVED-GTZ) with the Advantages of the Model participation of the Ministry of Small and Medium Enterprises. Ghardaia city has • H armony with the cultural and special cultural character and commercial social specificities. traditions, which are among the important factors of the project’s success. • I nvolvement of relevant population representatives in product design. The Model • Paying more attention to individuals The project can be illustrated as bellow: themselves rather than to the submitted documents. Distribution of the roles between involved parties: The Algerian banking law does • Appointment of Financing Officer with the ability to communicate well German Corporation for International Cooperation GIZ: Financing the technical assistance under the Small Enterprise Financing Development Program (The third component of the Sustainable Development Program) DZ Bank: As a guarantor of 100% of Technical Support Services institution (FIDES) financing to be decreased to 25% as the with experience in establishing MFIs (Namibia project progresses - Albania - Moldova - and Northern Mali)) Al-Baraka Bank of Algeria (Financing through Musharakah) not allow the establishment of financing in the Ghardaia environment. institutions with less than a capital of USD 35 million USD. Therefore, it was • Q uick decision making regarding the necessary to divide the roles between the grant of financing. funding party and the follow-up and field • The use a moral guarantee instead of material one. 175

Islamic Social Finance Report 2020 Guarantee Fund from DZ BANK (1) guarantee 100 % decreasing progressively to 25% Partnership Agreement Al-Baraka Bank of Algeria FIDES Algeria (3) (5) (4) (2) Provide Payment Accompaniment, Bringing projects, Musharakah evaluating them and Financing after follow up and selecting those ready approval of FIDES disputes resolutions to be financed Micro-enterprises Financing Methods Mushārakah capital Al Baraka Bank of Algeria provides • M oral guarantee of a notorious Mushārakah financing to well-chosen person. Micro-enterprises. Current statistics indicate that during the first year of activity, • H igh-level jury to resolve potential only 2 of the financed 45 Micro-enterprises disputes. did not meet payment deadlines. As for the financing of women domestic • Nature of financed projects: IGAs, they were granted Qar� �asan & Expansion phase (not start-up Murāba�ah financing. To guarantee the phase) financing payment, they were organized in the form of solidarity groups (between 3 • A mount of Mushārakah financing: and 15). For small equipment and working capital, the amount is from USD 500 • Nature of the financed projects: to 3000; and for large equipment, Crafts or commercial projects that the amount is from USD 2,000 to are independent of each other and 10,000 have solidarity in payment and discipline. • Duration: 12 to 36 months • Type of Financing: Starting with • Mandatory savings of at least Qar� �asan followed by a mini 5 monthly installments of Murāba�ah upon renewal. 176

Islamic Microfinance • Amount of financing: Between USD funds (coming from non-Shari’ah 100 and 500 per IGA. compliant sources). • Duration: 3 to 12 months. Risk Management • M andatory savings equal to 2 • Organizing Women in solidarity to 4 monthly installments of the groups. financing. • Mandatory savings. • C ontract of accompaniment between FIDES and the Group of • M oral guarantee of a notorious Women for a fixed commission, not person. linked to the financing amount or duration. • H igh-level jury to resolve potential disputes. • F IDES to pay administrative expenses to the bank for financing • D istribution of roles between management (excluding wages). different parties. Project Phases • Guarantee fund. • From 2008 to 2012: The financial Achievements product was managed by FIDES, the specialized entity. • The choice of Mushārakah mode of financing was adequate to the • S tarting from 2012: The financing is irregular nature of micro-enterprises fully managed by the Bank. revenues generation. • In 2017: Creation of a Microfinance • R eaching acceptable recovery rates fund from the “disregarded” due to professional accompaniment and proximity to the beneficiaries. 177

Islamic Social Finance Report 2020 • C ontributing significantly in assignments, especially in Islamic increasing the size of the financed Development Bank member countries50, a Micro-enterprises and in expanding Moroccan team of experts was behind the their activities. conception of a Management Information System “4US” dedicated to managing • C reating additional jobs. Economic Empowerment operations. The development of the MIS started in 2009. • I mproving significantly the management of the financed Micro- The Model enterprises. Economic Empowerment approach, which • Promoting entrepreneurship the MIS adopted, is a comprehensive development among small approach for doing business with entrepreneurs. disadvantaged population by considering them as real qualified partners, rather than Challenges burdens. It offers successful solutions to defeat almost all development challenges: • Absence of an appropriate legal access to opportunities, access to framework. support investments, establishing smart partnerships and access to suitable • Unbalanced or unfair competition financing and markets. for government programs that have preferential terms. Advantages of the Model • Weak geographic expansion of the The particularity of 4US is that it was experiment. designed to suitably fulfill the field needs; the MIS was not adapted from a • F ailure to transfer expertise to the conventional microfinance nor an Islamic local team resulting in the lack of finance system. The system is gradually control of the portfolio after the gaining in efficiency due to its deployment withdrawal of the technical support and utilization in different countries such of the specialized entity. as Sudan, Yemen and Tunisia, and is still on a permanent adaptation based on • T he difficulty of integrating multiple local challenges. 4US targets four Microfinance activity into the Bank’s categories of beneficiaries: Individuals activities. and families, solidarity groups, productive unions and sustainable development 5.6.3 “4US” MANAGEMENT village. INFORMATION SYSTEM (MIS), MOROCCO The system has the ability to manage large- scale projects for hundreds of beneficiaries’ Key ideas: Customization to Economic groups, and handles most Islamic financing Empowerment specificities modes. Introduction 50 ited Arab Emirates, Qatar, Bahrain, Saudi Arabia, Kuwait, Yemen, Egypt, Palestine, Sudan, Algeria, Tunisia, After more than 30 years of field Libya, Mauritania, Guinea, Chad, Cameroon, Mali, Djibouti, experience in Islamic Social Finance Benin and Nigeria 178

Islamic Microfinance Its strength resides in containing three Observatory enables the access important modules, namely Program, to a database containing any Financing and Business Intelligence. It also information needed to assess offers an observatory on the beneficiaries’ the poverty level in any given needs and the potential of the Income country, such as: identification Generating Activities (IGAs) promotion: of IGAs, micro-projects, income source of the poor, capacities • P rogram module: With all the of populations and key success aspects that a program demands, factors. In addition, it gives access starting from the launch of to various reports on the study operations, to the stage of of the needs’ assessment of the monitoring and evaluation, and to program target beneficiaries. The profit sharing at the end. It can also reports are as follows: 1. Reports manage several funds, in the same on IGAs including the scoring, 2. program, at the same time and in a Reports on micro-projects with their completely sealed way. scoring, 3. Reports on population and opportunities, potential assets, • Financing module to monitor the threats and territorial, and 4. beneficiaries’ applications through Data sheets on the couples IGA/ three major phases: Establishing Beneficiary and Micro-project/ a feasibility study of the project Promoter available in the database. based on the economic and the social dimensions, the approval by a Challenges financing committee and financing the project along with monitoring The above-mentioned Moroccan team was the work progress and the payments the first to initiate a product with similar of the contract’s terms. characteristics. However, it did not attribute enough importance to copyright protection. • B usiness Intelligence module Therefore, many other companies are with indicators that are relevant bringing into existence some systems to Islamic microfinance field and operating in the Islamic microfinance area ensuring a balance between the with similar characteristics. Then, the MIS SEEP51 financial performance holder’s company adopted a strategy on and the CERISE SPI452 social keeping the software updated with the performance. It is important to note latest functions and modules that are that this module gives the real-time inspired from the continuous evolvement of performance. the field reality. • T he implementation of the 51 The Small Enterprise Education and Promotion and several actors in the field of development and poverty (SEEP) Network is a non-profit organization that acts as alleviation. a network for practitioners working in microenterprise development and microfinance fields. More details on 179 Wikipedia https://goo.gl/QXnXVm 52 is a social performance assessment tool for financial service providers that was created by CERISE, in collaboration with the Social Performance Task Force